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Choosing to build a brand new home rather than buy an existing property provides a number of benefits for potential investors.

Generally these types of properties will be built in a developing suburb close in proximity to schools, transport and local services. Surrounded by other new homes, a new house is likely to have street appeal that will attract potential tenants and as a result provide excellent weekly rental returns for the property owner.

One benefit that often goes unconsidered by potential investors when investing in property however is the depreciation benefits available.

According to the Chief Executive Officer of BMT Tax Depreciation, Bradley Beer, research suggests that 80% of investors don’t maximise the depreciation deductions available from their properties.

Considered a non-cash deduction, investors don’t need to spend any money to be able to claim depreciation from their property. It is a deduction available for any wear and tear which occurs to the building structure and the plant and equipment assets contained in the property over time.

Depreciation relating to the building structure is claimed as a capital works deduction. Examples of items which can be claimed as capital works deductions include the walls, windows, doors and the roof of the property. Capital works deductions can be claimed at a rate of 2.5 per cent per year over forty years for properties in which construction commenced after the 15th of September 1987.

Plant and equipment depreciation on the other hand relates to the assets which can be easily removed from the property such as carpets, blinds, ovens, dishwashers, garbage bins and even shower curtains. These items depreciate based on an individual effective life as provided in legislation from the Australian Taxation Office.

While the owner of any income producing property is eligible to claim depreciation, those considering building a brand new property for investment purposes will usually receive higher depreciation deductions. There are two main reasons for this:

The owner of a brand new property will be eligible to claim the full deduction for the entire cost of the building structure over forty years. Owners of properties which are not brand new can only claim the remaining years available.

New houses usually contain plant and equipment assets which are higher in value. This increases the depreciation deductions which will be available for the owner.

Let’s take a look at some of the depreciation deductions the owner of a freshly built brand new house can expect to claim over the first five years of ownership.

As the table shows, the owner of a newly built house can claim between $8,300 and $10,700 in depreciation deductions in the first full financial year alone. Over five years, this cumulates to between $32,500 and $42,800 in deductions the owner can claim as a tax deduction.

Based on a tax rate of 37 per cent, investors will receive an average annual cash return of between $2,405 and $3,167 from a newly built house depending on its size and the assets contained.

Those considering building a brand new house for the purposes of an investment are recommended to seek advice from a specialist Quantity Surveyor prior to purchase.

A Quantity Surveyor, such as BMT Tax Depreciation, can provide a detailed depreciation estimate outlining the deductions that will be available once the property is property is constructed and available for rent. This estimate can help investors to crunch the numbers to get a more accurate picture of their after tax scenario to help them with their investment decision.

Once a property has been built, in order to claim depreciation a Quantity Surveyor should complete a tax depreciation schedule outlining all of the deductions available for the owner. This schedule can then be used by the property owner’s Accountant to process their claim when they complete their annual income tax assessment.

For a detailed estimate of the depreciation deductions available for any property, contact BMT Tax Depreciation on 1300 728 726 to speak with one of their expert staff or visit click here to request a quote.

Australia is made for outdoor living, so it is little wonder that alfresco areas have become sought after additions in any property.

Owners see great value in adding permanent weatherproof structures to an investment property. Creating an indoor-outdoor environment which can be enjoyed all year round not only adds value to the existing property, but it can also help to attract potential tenants and potentially increase the annual rental yield.

What many investors don’t realise is that by adding an alfresco or an outdoor structure of any kind, they will also impact the depreciation deductions they can claim.

Any structures added to an investment property will entitle the owner to claim additional capital works deductions, also known as building write-off, at a rate of 2.5% per year.

If the owner installs any new plant and equipment items, including removable or mechanical assets, this will also entitle the owner to claim depreciation deductions for these items. The deductions an owner can claim for any new plant and equipment items will be based on the individual effective life of each item as set by the Australian Taxation Office.

Let’s take a look at a scenario in which an investor decided to add a seven metre by four metre outdoor alfresco to their existing four bedroom investment property. The structural work on the alfresco cost $15,010. The owner also chose to install plant and equipment assets totalling $9,217 in value, bringing the total cost of work done to the property to $24,227.

Below is a summary of the costs of the new additions and the first full year depreciation deductions the owner could claim.

As the table shows, the owner of this property could claim $375 in capital works in the first full financial year deductions for structural items such as the concrete slab, walls, tiles, roof and lattice screening. The owner of the property would also be entitled to claim capital works for the remaining life of the property (forty years) for new structural items.

Plant and equipment assets installed such as an outdoor ceiling fan, outdoor furniture, a freestanding BBQ, light shades and garden solar lights resulted in a $3,831 deduction in the first full financial year for the property owner. This brought the total depreciation deduction of new items installed to $4,206 for the owner. These deductions would be in addition to any remaining depreciation deductions the owner could claim from the pre-existing property.

It is important to note, that if the property owner was to remove any existing structures or assets during the process of adding the alfresco area, they may also be entitled to additional deductions. If any remaining depreciation deductions exist for items or assets being removed during a renovation or addition, the property owner may be entitled to claim a deduction for the full amount of the remaining depreciation for items scrapped within the financial year of their removal.

Property owners should always seek the advice of a specialist Quantity Surveyor when they plan to make any alterations to their rental property. If the owner has an existing depreciation schedule, the owner will need to have it updated, and if assets or structures are being removed, the Quantity Surveyor should perform a site inspection before and after work commences to ascertain the remaining depreciation of items being removed and value new structures and items added to update the depreciation schedule for the owner.

With the Australian Taxation Office (ATO) encouraging rental property owners to be vigilant when preparing their annual income tax assessment this year, it’s important that investors understand the depreciation deductions they are eligible to claim.

Depreciation continues to be an area that investors find complicated and many investors lack the knowledge of complex tax legislation necessary to accurately assess what deductions they are entitled to. This can often lead to investors failing to maximise their depreciation deductions and a potential audit if incorrect claims are made.

To assist rental property owners, below are four must know points about property depreciation. These points include depreciation checklists to assist investors to understand some of the rules and terminology behind claiming property depreciation.

1. What is property depreciation?

As a building gets older and the items within it wear out, they depreciate in value. The ATO allows property investors to claim depreciation deductions related to the building structure and the plant and equipment items contained within any income producing property.

2. What is deductible under the capital works allowance?

A capital works allowance can be claimed due the wear and tear of the structural elements of a building. Examples of some of the structural items which can be claimed are below:

Deductions for these items are based on the historical costs of the building, the construction date and the type of property.

Residential property owners can only claim the capital works allowance at a rate of 2.5% for properties in which construction commenced after the 15th of September 1987, while commercial property owners can claim capital works allowance at a rate of 2.5% or 4% dependent on the property type and construction commencement date.

The below chart provides a visual explanation to help investors work out the relevant capital works entitlement for their property type.

3. What are plant and equipment assets?

Plant and equipment assets are the mechanical and removable assets contained within an investment property. The ATO has identified more than 1,500 items that rental property owners can claim as depreciable plant and equipment assets.

The depreciation for these assets will be calculated based on the individual effective life of each asset as set by the ATO. The checklist below lists some of the plant and equipment assets found in most investment properties.

To find the depreciation rate of any depreciable asset, BMT Tax Depreciation have developed Rate Finder, a free app available to download here. Investors can search by asset name or industry type within the app.

4. How can a rental property owner ensure depreciation is claimed correctly?

Investors are encouraged to enlist the services of a specialist Quantity Surveyor to arrange a tax depreciation schedule.

Quantity Surveyors are one of a few select professionals recognised under Tax Ruling 97/25 with the appropriate knowledge for calculating construction costs for the purpose of building depreciation.

A specialist Quantity Surveyor is likely to ask a property owner to supply the following information when they call to arrange a depreciation schedule:

A specialist Quantity Surveyor will perform a site inspection of the property when arranging a depreciation schedule. By doing so, they may identify plant and equipment items which may otherwise have been identified as capital works. Thus increasing the rate at which items within the property can be depreciated.

In commercial properties, Quantity Surveyors will ascertain which items can be attributed to the owners’ deductions and to their tenants, as tenants are also entitled to claim depreciation deductions. They will also ensure that the correct deductions are applied for assets dependent on the type of commercial property, as the effective life of assets in commercial properties vary significantly industry to industry.

By arranging a depreciation schedule, the owner of the property can rest assured knowing that the correct and maximum deductions can be claimed. The schedule will outline all of the deductions available for the owner’s Accountant and provide evidence to support the owners claim should the ATO complete an audit.

Many Australian’s own their primary place of residence, but an increasing number are making the swap from living in their property to using it as an investment for their future.

There are a number of key factors that should be addressed to gain the maximum benefit from renting out your home. Investing in a tax depreciation schedule from a specialist Quantity Surveyor such as BMT Tax Depreciation will maximise cash returns on the property once it begins to generate income.

Your tax situation will be transformed

When an owner decides to turn their primary place of residence into an income producing property, their tax situation will change.

Expenses in holding the property will become tax deductible

If an owner has only rented their property for part of the year, deductions for this portion the year can still be claimed

If any improvements are made while the property is being rented, these may also entitle the owner to depreciation deductions

Common misconceptions

While it is true that newer properties may receive higher deductions, all investment properties will earn depreciation deductions for the property owner.

When a property is not brand new, owners will still be able to claim depreciation on the structural component for the remaining time within the forty year effective life period

Investors who own properties that are built before 15th of September 1987 can still claim depreciation on the fixtures and fittings within the property and include any recent renovations, even if the renovation was carried out by a previous owner

Capital gains implications

When a home becomes an investment property a Capital Gains Tax (CGT) event may be triggered if the property is sold

There are various situations were properties will attract a CGT exemption. It is best to discuss your CGT situation with an Accountant as each individual scenario is different

Consult with an expert

If you are thinking of making your home an investment property, visit the BMT Tax Depreciation property investor’s page on their website for more information by clicking here. Alternatively, you can speak with one of their expert staff on 1300 728 726 for obligation free advice today.

The Australian Taxation Office (ATO) allows investors to choose between two alternative methods of claiming depreciation on plant and equipment assets. These are the diminishing value and the prime cost methods of depreciation.

When an investor makes their depreciation claim, they can choose only one of these methods, so it is important for them to understand how this choice will affect their investment returns.

Both the diminishing value and the prime cost methods claim the total depreciation value available over the life of a property. However the two methods use different formulas to calculate depreciation deductions, achieving different short and long term cash flow positions for the property investor.

Under the diminishing value method, the deduction is calculated as a percentage of the balance you have left to deduct. The formula a Quantity Surveyor will use to calculate depreciation using the diminishing value method is shown below.

Under the prime cost method, the deduction for each year is calculated as a percentage of the cost. The formula a Quantity Surveyor will use to determine the amount of depreciation deduction under the prime cost method is shown below.

The strategy of the individual investor must be considered when determining which method is the best choice for them.

If an investor makes their claim using the diminishing value method, they are claiming a greater proportion of the assets cost in the earlier years of the effective life of the asset as set by the ATO, therefore receiving greater deductions in the earlier years of owning the property. Alternatively, by selecting the prime cost method the investor is claiming a lower but more constant proportion of the available deductions over a longer period.

No matter what strategy an investor has, it is recommended they seek advice from an Accountant when making a decision. A specialist Quantity Surveyor will always be able to provide a Capital Allowance and Tax Depreciation Schedule which outlines the depreciation deductions available to claim using both of these methods for comparison.

To learn more about property depreciation, visit BMT Tax Depreciation’s property investor page on their website by clicking here. Alternatively, speak with one of their expert staff for advice today on 1300 728 726.

Often property investors rent out their property fully furnished. Depreciating furniture can add thousands of dollars to the owners depreciation claim.

The below table provides an example of the difference that claiming depreciation on a $16,000 furniture package could make to an investor who purchased a two bedroom two bathroom unit:

It is important that a specialist Quantity Surveyor prepares a tax depreciation schedule for an investment property before the owner lodges their tax return.

A Quantity Surveyor will carry out an inspection on the property to identify more plant and equipment items and apply depreciation legislation to maximise depreciation deductions for the owner.

BMT Tax Depreciation is the Accountants preferred supplier of tax depreciation reports. They complete reports for over 10,000 Accountant referrals each year, with reports showing an average of $5,000 to $10,000 as a first full year deduction.

BMT Tax Depreciation also guarantee to double their fee worth in deductions in the first full financial year or they will not charge for their services.

For further information on depreciation, property investors can visit BMT Tax Depreciation’s what is depreciation page by clicking here.

Investors who would like a free over the phone assessment of available deductions they can claim should contact BMT Tax Depreciation on 1300 728 726.

One question we are often asked by property investors is, “Why does a unit obtain more depreciation deductions than a house?” Although it’s not always obvious what differences in depreciation deductions there are between property types, it can be very useful knowledge for any property investor.

When looking at depreciation deductions, there are several factors that affect the final calculation. These include the purchase price of the property, the construction commencement date, the settlement date, the land value (where relevant), and the value of fittings and fixtures located within the property.

Due to the amount of infrastructure involved in the construction of a residential unit compared to a house or residential property, your overall claim can be greatly impacted based on type of property you choose to invest in.

Units also often contain more fixtures and fittings than a house, allowing the owner to claim against many items within the unit (e.g. lights, carpet and dishwashers). In addition to this, unit owners may be eligible to claim a share of common property, which is defined by the Australian Taxation Office (ATO) as ‘areas within a complex or development that are shared between owners’, such as driveways, pools, outdoor furniture, lifts, and fire stairways. Common property represents one of the most significant differences between houses and units for depreciation purposes, though deductions can only be claimed for these in select states.

The example below offers a comparison of depreciation deductions for a unit and house. After the first five years of ownership, the table shows the unit having accumulated $17,500 more in depreciation deductions. This is despite both properties having the same purchase price, construction date and settlement date.

Note: When purchasing a strata unit there are other costs, such as strata fees, to consider as an ongoing cost of ownership.

Quantity Surveyors are one of the only professions recognised by the ATO as qualified to estimate construction costs for depreciation purposes (TR97/25). As a building gets older, natural wear and tear depreciates the value of the property and its items. The ATO then allows property owners to claim this depreciation as tax deductions. Any property owner who obtains income from their property is entitled to make a depreciation claim.

Despite most investors being aware that they can claim deductions based on the building structure and the plant and equipment items of their unit, many are unaware that they may be able to claim depreciation on common areas as well. To obtain the most accurate and financially rewarding return, it is worthwhile for investors to consult a professional Quantity Surveyor to maximise depreciation claims.

While Accountants and Real Estate Agents are able to estimate depreciation figures on occasion, without a professional Quantity Surveyor’s construction cost knowledge and capability to accurately determine depreciation deductions, it is difficult to obtain accurate depreciation deduction estimates for an investment property. Most importantly, the ATO will not recognise their figures in a tax return. Consulting a Quantity Surveyor guarantees the investor their maximum available deductions.

To provide these deductions, usually a Quantity Surveyor will conduct a site inspection to establish the precise number of plant and equipment items on the property as well as to take measurements, photos, and notes in order to enhance a depreciation schedule. A Quantity Surveyor can also determine the correct share of the common property a property investor is entitled to claim based on factors such as the unit’s size, position within the development, and even its view. They are able to do this even by looking at a development’s building plans.

Following a Quantity Surveyor’s consultation, if an investor is audited by the ATO, their depreciation claim will then be supported by solid documented evidence. Adding to the benefit of a property investment’s complete depreciation schedule, any fees of a Quantity Surveyor are 100% tax deductible, as far as they extend to the production of a depreciation schedule.

If considering an investment property, please do not hesitate to contact BMT Tax Depreciation on 1300 728 726. Our staff are always happy to answer any questions relating to property depreciation. You can also easily estimate the depreciation deductions you may receive by using the free BMT Tax Depreciation Calculator. This can be downloaded as an app to your smart phone for free at www.bmtqs.com.au/calc so that you can work out deduction estimates even while inspecting your potential investment property.

Investment property owners often miss out on thousands of dollars due to two main reasons:

They don’t know what depreciation entitlements they can claim for renovations or refurbishments to their investment property

They don’t use a qualified Quantity Surveyor to prepare a tax depreciation schedule

Follow the steps below to ensure your tax depreciation schedule is right the first time around.

Understand scrapping

Scrapping refers to the removal and disposal of any potentially depreciable asset from an investment property. When worn or old assets (like carpet and hot water systems) are replaced and scrapped, the owner of the property may be entitled to claim the remaining depreciable value for the items being removed as a tax deduction in that financial year.

Get a “before renovation” tax depreciation schedule

Arranging a tax depreciation schedule before completing renovations will save you time and money when making a claim. In case of an audit by the Australian Taxation Office (ATO), a valuation of all items in a property, as well as adequate photographic records is required.

Get an “after renovation” tax depreciation schedule

A second schedule is prepared after completion of the renovation, identifying the value of all new plant and equipment and capital expenditure within the property. The adjustments will be made to your tax depreciation schedule for a small adjustment fee and should not cost you as much as the initial tax depreciation schedule. The new schedule will outline all the depreciation claims available for the life of the property (forty years).

Only deal with a credible provider of tax depreciation schedules

With over sixteen years of Quantity Surveying expertise, BMT Tax Depreciation is the leader in providing ATO compliant and comprehensive tax depreciation schedules to property investors Australia-wide. At BMT, our qualified team of Quantity Surveyors meticulously prepare and customise each and every BMT Tax Depreciation Schedule, ensuring you claim everything you are entitled to.

Scrapping is a complicated process that requires the expertise of a specialist Quantity Surveyor in conjunction with an Accountant. By requesting a tax depreciation schedule you know you’re not going to miss out on anything and your Accountant will love you for it.

To learn more about property depreciation, or to arrange a tax depreciation schedule for your investment property, visit the BMT Tax Depreciation Schedule page on their website here. You can also contact one of BMT’s expert staff for obligation free advice on 1300 728 726.